Rate hike likely, EMIs set to go up: RBI
The Reserve Bank of India (RBI) is widely expected to raise key rates in its quarterly review on 25th jan11, a move that may result in both deposit and lending rates inching up. The move will also lead to a higher EMI for existing Home and Car Loan customers.
About 80 % of the bankers polled believe that the RBI will hike repo rate by 0.25 % points and about 20 % of the bankers polled think the hike could be stronger, by 0.50 % points.
Even for the reverse repo, clear majority believe a 0.25 % points increase will be well on its way.
Those expecting a stronger dose of tightening believe that inflationary pressures will increase further warranting a steep rate hike.
While those in favor of a 0.25 basis point hike simply feel that the RBI may choose to stagger its rate hikes between the quarterly policy and the mid quarter review to be conducted six weeks from now.
On its part, the central bank indicated another hike in key policy rates in its quarterly review on Tuesday. It said that containing inflation would be the top priority as high rate of price rise could hurt the economic growth.
RBI, in its macroeconomic and monetary development report ahead of quarterly review of monetary policy, also warned that persistent high inflation could endanger the growth objective and also increases risks to inclusive growth.
RBI, since March 2010, has increased the policy rates six times to anchor inflationary expectation and check the rate of price rise.
Even as the economy grew by 8.9 % in the first half of the current fiscal, inflation, which increased to 8.43 % in December, has remained an area of concern.
“While downside risks to growth have receded, upside risks to inflation have increased,” the RBI said adding containing inflation will have to be the predominant objective of monetary policy in the near term.
“Conventional wisdom says that there should be at least 25 basis point hikes in interest rate,” State Bank of India Chairman O P Bhatt had said last week.
Despite moderating for two weeks, food inflation is still very high (15.52 %), on account of rising prices of essential items like vegetables, particularly onion and tomato, fruits, milk and eggs.
While the rate hike seems like a given, bankers are hoping for some relief in the form of more liquidity easing measures.
Bankers have pitched to the RBI for a cut in the CRR and SLR to help ease the liquidity deficit which has been consistently close to 1 lakh crore and could threaten credit flow to productive sectors.
But even there bankers are divided and feel that liquidity could ease even without further RBI measures if government spending picks up – a point reiterated by the RBI as well.
With the government and the RBI focused squarely on managing prices, higher interest rates seem inevitable for corporate and consumers alike but if the RBI’s assessment of the economy is correct then growth is unlikely to take a hit despite inflation fighting measures.
Processing your request, Please wait....
